Rules, Institutions, or Both? Estimating the Drivers of Telecommunication Investment in Latin America

Abstract

This paper analyzes the link between regulation, institutions, and telecommunications investment in Latin America. The investment levels of the region lag behind those of advanced economies and are impeding substantial progress on digital transformation. Using a database built for this analysis, which covers nearly 90% of Latin American countries for 2007-2017, we confirm the relevance of regulatory and institutional frameworks to explain investment trends in the sector. We also show that a “good” institutional quality contributes significantly to counteract partially a “bad” regulatory environment, and vice versa. Moreover, their impact is significantly stronger when good regulation and institutions interact, suggesting that joint reforms to improve institutions and the regulatory environment would pay off. In particular, improving cybersecurity and piracy control regulation, and fighting corruption and undue influence stand out as the priorities to increase telecommunication investment in Latin America.